Open Banking - The Definitive New Zealand Guide

Open Banking is somewhat talked about but not widely understood. The general idea is that you give permission to a third-party company to access your banking data (i.e. transaction history and what products you have) to help speed up applications for credit card, loans, mortgages, among other products. Open banking is also meant to provide customers with the best deals because the credit provider (i.e. bank, lender or credit card company) has full access to the history and behaviour of an applicant. 

Open Banking is not without its risks. To help explain the pros, cons, benefits and limitations, our guide covers:

• ​What is Open Banking?
• Open Banking's Pros and Cons
• Frequently Asked Questions
• Conclusion and Must-Know Facts

Know this first: While Open Banking hasn't formally launched in New Zealand, our view is that it will in due course. We also believe, based on what we've observed in other countries, is that the data sharing options will be significant. While we're unable to predict exactly what Open Banking will envisage, data that you are likely to be able to share with Open Banking:

• Account information and balances
  
• Product information (such as interest rates and fees)
• Transaction details (including amounts spent and paid in)
  

Open Banking benefits may include:

• Faster applications and approvals for new credits, loans and mortgages
  
• Oversight of your spending to help you budget properly
  

Right now, without open banking, your banking information is secure. No one can access it, make payments from it, or even view your banking history.
 
Open Banking changes all of this. While the name 'open' and 'banking' may sound alarming, the general idea is that security is at the heart of everything. Open Banking is your approval to allow the bank to ‘open your bank accounts’ to third-parties. Not just any third-parties, but financial services or something comparable – services that can help you budget, save, or make sound financial decisions.
 
For example, if you’re trying to save money or identify where you overspend, you could give a money-saving or budgeting app permission to view your bank account and evaluate your spending. It could tell you where you overspend, how you can save, and even where to save. Many such budgeting apps operate in New Zealand right now and rely on accessing your transaction data directly from your bank.
 
Open banking may also be relevant when you're looking for a financial product or service, such as a new credit card, personal loan or car finance. Open banking gives the lender access to your account with the idea that the most suitable product can be found. Going a step further, Open Banking could even help you find money-saving coupons or tell you that you have the money to spend without going into overdraft.

Open Banking is as secure as the security at your chosen online bank. Open Banking is built and run by your bank, so you can expect the same level of security as you regularly get from your bank. 
 
In addition to the bank security, the API running the service protects your information too. The APIs transfer the data between your bank and the third-party service. 
 
Know this: You are in charge of who you give access to your bank account information. No one can force it upon you.

You are in control of what information is shared in Open Banking. The Open Banking API will always show you what information you’ll be sharing with the third-party app. Since each app has different needs, the information you share will differ.
 
Some apps, for example, may need your name, address, and access to all bank account information. Other apps may only need access to transfer funds to your savings account or to see certain types of transactions. ​

An Open Banking API (Application Programming Interface), transfers data for you. The API is the ‘middleman’ between your bank and the third-party service. Once established, the API reliably transacts all of your account transactions to the third party. You can cancel any open banking fees whenever you like - once an API is established, it needs your consent to operate.

We believe Open Banking has the potential to be positive for New Zealanders, as long as it is not abused or manipulated. Open Banking makes it easier for consumers to take advantage of a variety of fintech services, but it helps other companies grow too. Loans and other credit products can be issued more efficiently because all the data is provided upfront. This, we believe, will lower fees and compliance costs. 
 
Generally, we take the view that Open Banking is a win-win for the economy. It also opens the opportunity for many more apps and financial services that are yet to be introduced but will thrive in an Open Banking environment.

Open Banking has a lot of advantages, but, as a new technology concept, also comes with some risks. We overview the pros and cons in detail below.

Benefits of Open Banking:
The benefits of Open Banking are extensive, for both consumers and companies. While benefits will differ for each sector, overall, the benefits include:

1. Better customer experiences - banking data can be presented in an easy to understand format, allowing for better decision making. It also brings down the risks for companies lending money (loans, credit cards, etc.) because a complete overview of an applicant's financial history is available. 
2. More revenue opportunities for existing and not-yet created businesses - with data readily available, financial companies can innovate and improve their processes and introduce niche products for different customer spending behaviours.
3. Improving the efficiency of the banking system - Open Banking can replace credit application forms. This is because the data is provided upfront allowing for approval (or rejection) decisions to be made faster.
4. More services would be tailored to customers’ needs - with so much data, specific offerings and products can be developed to target customers. However, this could also be a bad thing if products are unaffordable or more debt is created.

 
Downsides of Open Banking:
Open Banking is so new that it has many potential downsides, but as the systems become more available, the disadvantages may slowly disappear (or at least decrease). Some downsides include:

1. There’s a higher risk of data mishandling - if your data is misused, this could work against you.
2. Banks may suffer reputation damage - this will likely happen if a client’s information is stolen using open banking.
3. Complete trust is needed upfront for Open Banking to progress - if consumers don’t trust the process, they won’t buy-in, and many consumers worry about their information privacy.

Open Banking isn't straightforward - to help make sense of its complexities, our list of frequently asked questions covers the practicalities and security concerns. 

Open Banking sounds complicated, but here’s a simple example to understand how it works in practice:

1. You apply for a mortgage. Your lender needs a lot of information, most of which applies to your bank account and financial status.
2. Rather than printing out the required documents and sending them over to the lender, you could give the mortgage lender access to your bank account through open banking. 
3. Open banking allows the lender to have instant access to the information they need. There's no lag time while waiting for you to get the information.

Open Banking isn’t open to everyone running a business; it’s highly regulated and only available to approved businesses. All approved companies must go through an extensive review to ensure they have all the necessary security and privacy systems in place. Right now, a number of banks permit selected companies to use their APIs for personal budgeting - these apps are listed on our budgeting apps review (LINK). Another example is accounting software company Xero, which uses APIs to provide bank feeds to reconcile payments and track invoices.

When you sign up for a service that uses Open Banking, they will ask for your permission. The provider must show you all the information they will need access to and how they will use it. 
 
As ‘double protection’ your bank will double-check with you to make sure you approve of the information the app will see.

Yes, you can remove permission whenever you no longer want to grant access. You can remove permissions in one of two ways: 

• Make the changes in your online banking dashboard
• Contact the service provider directly and withdraw your consent
  

No, you must give express permission for Open Banking before any service, or your bank can authorize it. You don’t have to worry about opting out as it’s not an automatic opt-in service.

Open Banking hasn’t quite arrived in New Zealand in the way it is working overseas. Nonetheless, before agreeing to share your financial data, there are some must-know facts to make sure you are adequately informed about the risks of Open Banking. 

1. With every consent to share your data, you are handing your banking details to another party. While this may not seem significant, and the rules are very strict about what companies can engage in Open Banking, there is still a risk. 
2. Right now, your bank's terms and conditions prohibit the sharing of bank login details. In the terms and conditions, a bank makes its customers liable for any losses or frauds arising from the sharing of bank access details (user names, passwords, etc.). Open Banking will ensure a secure environment, but more time is needed to see what the landscape will look like in New Zealand if and when it launches across the country.
3. Open Banking is at its infancy. While it has received a lot of publicity, there are significant security implications which need to be resolved before any widespread rollout can commence. For recent news coverage, we suggest reading this article from Stuff.co.nz as a background to the status of the New Zealand rollout.